Nam Hyun-woo has worked as a staff writer at The Korea Times since 2013, mostly covering business and politics. He currently belongs to the Business Desk where he covers topics such as emerging tech, AI, ICT and Korea's chaebol community. Prior to joining the team, he was the paper's correspondent for the presidential office of Korea during the Yoon Suk Yeol and Moon Jae-in administrations.
Land development scandal set to engulf presidential election
Banners fly near Seongnam City office in Gyeonggi Province, Friday. The top one reads "Who owns Hwacheon Daeyu?" an asset management company that stirred a controversy with its sizable dividends gained from a land development project in the city. The bottom banner reads the profits earned from the project should be returned to the citizens of Seongnam. Yonhap
By Nam Hyun-woo
Ruling, opposition parties trade barbs over development project in Seongnam
By Nam Hyun-woo
A controversial land development project in Seongnam, Gyeonggi Province, is becoming a major issue in the upcoming presidential election, as its snowballing effects are hurting both the ruling and opposition parties.
The main opposition People Power Party (PPP) has been criticizing Gyeonggi Province Governor Lee Jae-myung, the leading presidential contender of the ruling Democratic Party of Korea (DPK), throughout this month, over the suspicion that he gave business “favors” to an asset management company and its trust account company when he was mayor of Seongnam.
The two firms together earned more than 400 billion won ($340 million) in dividends over the past three years from the project to develop Seongnam's Daejang-dong area, which was carried out during Lee's tenure from 2010 to 2018.
However, the issue has now taken a twist against the PPP, as Rep. Kwak Sang-do left the party following reports that his son worked for the company involved, Hwacheon Daeyu Asset Management, and collected 5 billion won in severance pay. With the DPK now countering by calling the issue the “PPP political scandal,” observers anticipate that the presidential election will also be affected by how the controversy unfolds.
On Monday, Kim Man-bae, a former journalist who is the largest stakeholder in Hwacheon Daeyu, appeared at Yongsan Police Station to answer questions on the suspicions surrounding the development project.
Kim refuted allegations of political influence or favors regarding how the company could receive such huge dividends, and also on how the company's board could be packed with influential legal figures as advisors including a former chief justice, former prosecutor general and former special counsel Park Young-soo, who investigated the impeached former President Park Geun-hye's corruption case.
Kim and his company are at the center of the controversy related to the Daejang-dong development project, because Hwacheon Daeyu and its trust account company, SK Securities, received a respective 57.7 billion won and 346.3 billion won as dividends, which are 1,154 times their initial investment of 50 million won and 300 million won. Hwacheon Daeyu was established in 2015 with capital of 50 million won, and SK Securities was investing into special purpose company, named Seongnam's Yard Corp. (SYC), on behalf of seven special purpose companies fully owned by Hwacheon Daeyu.
The project was pursued in a public-private partnership, carried out by SYC, which was established in 2015, and invested in by Seongnam Development Corp., having a 50 percent stake, and a consortium comprised of five financial firms having a 43 percent. Hwacheon Daeyu and SK Securities, which invested 350 million won, took up the remaining 7 percent.
As the home prices of the Daejang-dong area spiked after the development began, the project raked in more than 1 trillion won in profits, which provided a huge payout to Kim and the other investors in Hwacheon Daeyu.
Despite having only a combined 7 percent stake, Kim's side took 68 percent of the total dividends SYC earned in the three years, because SYC's contract limited its largest stakeholder ― Seongnam Development Corp. ― and second-largest stakeholder ― the consortium ― to a fixed amount of dividends first, leaving the remainder for Hwacheon Daeyu.
As the controversy expanded, Hwacheon Daeyu then said it invested 35 billion won into the project out of 40 billion won it borrowed, but this raised further questions as one of the people who extended the loan was a member of the SK Group owner family.
Gyeonggi Province Governor Lee Jae-myung speaks after a Democratic Party of Korea primary vote in Gwangju, Saturday. Yonhap
Governor Lee's camp has been claiming that the investment structure of the project was of huge benefit to Hwacheon Daeyu as home prices rose unexpectedly, but the opposition party has raised suspicions about Kim's relationship with Lee. The PPP questioned how Hwacheon Daeyu, a newly established company, won such a lucrative project just a day after it submitted its business proposal to Seongnam Development Corp.
“Lee has already said that he was the architect of the Daejang-dong project,” PPP floor leader Kim Gi-hyeon said Monday. “In any case, Lee cannot dodge his responsibility in this unprecedented case.” The major opposition party has been demanding an investigation by a special counsel into the matter.
The DPK has countered the PPP's criticism by pointing to Rep. Kwak's involvement with Hwacheon Daeyu. On Sunday, CBS reported Kwak's son worked for the company for six years and was given a 5 billion won severance package, despite it being his first-ever job, raising speculation that this was a kickback for his father.
Though the son wrote on his father's Facebook that he was not involved in setting up the structure of the dividends at Hwacheon Daeyu and the actual amount he collected was 2.8 billion won after paying taxes, the lawmaker left the party just 13 hours after the report was released.
“Before questioning who owns Hwacheon Daeyu, the PPP should conduct self-scrutiny and find out who is involved,” DPK Chairman Song Young-gil said Monday. He also rebuffed the PPP's demand for an investigation by a special counsel, saying the case should be addressed immediately by the prosecution and police. Korea's special counsel is similar to the U.S. independent counsel, whereby an independent lawyer assembles a team to investigate a case to preclude political influence.